What Are The Odds Of A Recession And How Much Will It Hurt Your Questions Answered

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What's happening
A growing chorus of economists and financial experts predict that the US is headed into a recession -- defined as two sequential quarters with a significant, pervasive decline in economic activity.

Why it matters
Past recessions have been marked by widespread layoffs, bankruptcies, higher borrowing costs and turbulence in the stock market.


What's next
No one can predict the future, but it's vital to remain calm. Gather facts and move deliberately to protect your financial position.





may be pushing the US economy into recession. Last week's 0.75% interest rate hike by the Federal Reserve -- -- aims to counter rampant inflation, which hit a new 12-month peak of 8.6% in May. The Fed's two earlier rate hikes in 2022 have done little to slow inflation so far, and economics and financial experts now worry high prices, and could usher in a recession.
A analyzed three economic models to determine the odds of a recession, with mixed conclusions. Two models showed low risk, but a broader analysis of inflation and unemployment indicators predicts a rise in jobless numbers over the next year, which . The report also notes that, "historically, elevated inflation and low unemployment have preceded recessions."

To assess whether we're in a recession, economic experts have their eyes on gross domestic product, or GDP -- the value of all goods and services produced within a country during a specific period -- which is a key metric used to gauge economic growth and recessions. In the first three months of 2022, the US GDP dropped by 1.4%. When GDP falls during two quarters back-to-back, technically the country is in a recession. (The National Bureau of Economic Research , but it hasn't yet.)



With mounting anxiety about an impending recession in the US, you may be concerned, or at least a little curious, about what this may mean for your finances. My So Money podcast audience recently sent in a number of  -- about how best to prepare, , and generally make smart money moves in these uncertain times. Here's some guidance to help navigate through what is a difficult financial period for many of us.
First, what typically happens in a recession?
It's always helpful to go back and review recession outcomes so that we can manage expectations. While every recession varies in terms of length, severity and consequences, we tend to see more layoffs during economic downturns. Accessing the market for credit may also become harder and banks could be slower to lend because they're worried about default rates.

















If the Federal Reserve continues to to clamp down on inflation, then we might see an increase in borrowing costs. So, even if you the interest rate may be higher than it was in the prior year. We're already seeing this in the mortgage markets where the average rate on a is over 5%, the highest level since 2009.

The silver lining in some recessions is that, as rates go up and inflation cools, prices on goods and services fall and our , depending, of course, on the labor market and wages. We may also see an uptick in entrepreneurship, as we saw in 2009 with the Great Recession, as the newly unemployed often seek ways to turn a small business idea into reality.
Should I stop investing in my 401(k)?  
With stocks in a downward spiral for weeks, many want to know how a recession could impact their long-term investments. Should you stop ? The short answer is: no. At least, not if you can help it. Avoid panicking and cashing out just because you can't stomach the volatility or watch the down arrows. 

My advice is to avoid making knee-jerk reactions. This may be a good time to review your investments to be sure that you're well-diversified. If you suddenly experience a change in your appetite for risk for whatever reason, talk it through with a financial expert to determine if your portfolio needs adjusting. Some online  platforms offer client services and can provide guidance. 

Historically, it pays to stick with the market. Investors who cashed out their 401(k)s in the Great Recession missed out on a rebound. The S&P 500 has risen nearly 150% since its lows of 2009, adjusted for inflation.

The one caveat is if you desperately need the money you have in the stock market to pay for an emergency expense like a medical bill, and there's no other way to afford it. In that case, you may want to look into . If you decide to borrow against your retirement account, commit to paying it back as soon as possible.